02 December 2008

History Repeating

Some big discoveries out there in the MSM today. First up, a real doozy: it turns out that this economic downturn exposes a powerful paradox. You see, journalists have recently discovered a nasty feedback loop. It goes like this:

The recession and financial crisis leads people in the lower economic strata to cross the line of poverty and into really desperate need; it can also lead people in the middle economic strata - those who lose their jobs - to go straight from the comfortable category to the 'in need' category. And thus, the recession means a much greater need for charity.

However, the stock market crash and the economic downturn mean that people in the upper econcomic strata don't have as much to give. And the bleak forecast makes them less willing to give to charity.

Therefore, just when charity is needed, the resources for it have dried up. What an awful situation!

But wait, isn't this precisely the story of the Great Depression. Isn't this exactly the narrative that I taught to my American Politics students every single semester? Isn't this why we created the welfare state in the first place? And yet, this LA Times story is written as if in complete ignorance of such history. And it fails to even mention the possibility that private charity is not the solution to public welfare. Adding insult to injury, it keeps referring to the fraying 'safety net', given the problems charities are facing. But the 'safety net' is a metaphor Reagan coined to describe public welfare. We created a public safety net exactly because we realized that private charity was not the answer.

Next, it turns out that home prices DO GO DOWN. And that when they do, it's not a temporary blip before going up again. In fact, it turns out that there's a feedback loop here, because declining prices - and especially foreclosed homes back on the market at half their previous price - lead to a 'race for the bottom'. If you need to sell your house, and A) there's a foreclosure down the street + B) you know the value of your house will be less next month than it is this month, then the answer is to drop the price A LOT.

Hmmm...someone should come up with a name for this cyclical nature of capitalism. I don't know, maybe we could call it 'The Business Cycle'. I have to give 19th century capitalists their due: at least they realized such a thing exists. We are now almost one year into the worst recession in, at the very least, a quarter of a century. We are now a ways into one of the worst housing collapses in history. We could have prepared for these things just a bit, cushioned the blow just a tad, but instead everyone was denying reality up until just a few months ago...Lots of people saw this coming, but they were laughed at. Literally. This video is a bit long, but I think it's worth it for the way the talking heads utterly dismiss Schiff, especially the Fox News people who laugh in his face: